Food and Beverage M&A Landscape: Trends to Watch

Following the sky-high activity from 2021, M&A activity in the food and beverage industry slowed to more sustainable levels in 2022, inching closer to 2019 numbers in terms of deal volume and value. Despite the more moderate M&A activity throughout 2022, some trends coming out of 2021 continued to apply. Here are the four main M&A trends we observed in the food and beverage industry in 2022:

CONTINUED CONSOLIDATION BY STRATEGIC BUYERS: STRATEGIC BUYERS REMAIN THE MOST ACTIVE BUYERS IN THE FOOD AND BEVERAGE INDUSTRY

In 2022, there was continued consolidation of strong and growing brands in the food and beverage industry. Strategic buyers, including portfolio companies primarily owned by private equity investors, were predominantly driving the M&A activity in the food and beverage industry.
 
In the second quarter of 2022, 74% of the total transaction volume in the food and beverage industry was driven by private strategic buyers, which represented a 4% increase from the first quarter of 2022. In the first half of 2022, financial buyers participated in only 10.3% of all closed transactions, whereas strategic buyers participated in 81%. In acquiring their competitors, these strategic buyers continue to take advantage of the opportunity to expand their market share within the food and beverage industry. Throughout 2023, we anticipate further consolidation by strategic buyers within the food and beverage industry backed by private equity investors with excess capital.

DECREASE IN DEAL VOLUME AS COMPARED TO 2021

In contrast to 2021, there was a substantial decrease in deal volume in the food and beverage industry in 2022. In the first half of 2022, there was decrease of approximately 30% in reported transactions as compared to the first half of 2021. In both Canada and the U.S., there was a decrease in transaction volume between the first and second quarters of 2022. This decrease was much steeper in Canada, where transaction volume in the first quarter of 2022 was 27.3% less than the previous quarter. Additionally, the first half of 2022 had the lowest volume of deal activity when compared to the first half of each year beginning in 2018.
 
Though there may be a myriad of reasons for the decrease in deal activity, recent macroeconomic and geopolitical factors have likely played an instrumental role. The recent geopolitical uncertainty caused by the invasion of Ukraine, rising interest rates and its impact on consumer preferences, inflationary pressures, shifts in labour costs, and disruptions in the supply chain provide some explanation for the decrease in M&A within the food and beverage industry. If the uncertainty in the market does not cease in the near future, a continued decrease in deal volume may persist through much of 2023.

DECREASE IN DEAL TRANSACTION VALUE COMPARED TO 2021

In addition to a decrease in deal activity, 2022 also reported a steep drop in deal transaction value when compared against 2021. In Canada, the second quarter reported a 49.8% decrease in the aggregate transaction value of deals when compared to the previous quarter. The first half of 2022 reported the lowest aggregate deal value as compared to any first half of the year in the last five years. The aggregate value of M&A deals closed within the food and beverage industry in the first half of 2022 was C$4.7-billion, which was a 66% decrease from the C$13.9-billion reported in the first half of 2021. This decrease was also reported for middle market M&A transactions, where the first half of 2022 reported a 70% decrease in total deal value compared to the first half of 2021.

BRANDED PACKAGED GOODS, FOLLOWED BY BEVERAGES, ACCOUNT FOR THE LARGEST PERCENTAGE OF DEALS CLOSED IN 2022 

In 2022, the branded packaged goods sector of the food and beverage industry continued to experience strong deal activity. To no surprise, the M&A landscape in the first half of 2022 was led by branded packaged goods, which accounted for 39.7% of deals closed. The beverage sector, including both alcoholic and non-alcoholic beverages, immediately followed and accounted for 32.8% of deals closed. Despite decreases in deal activity in other sectors of the food and beverage industry, the beverage sector experienced an increase in deal activity in the second quarter of 2022, as compared to the first quarter. We anticipate the branded packaged goods and beverage sectors to continue to grow and lead M&A activity in 2023.
 
For more information, please contact:
 
Michael Stevenson                  +1-416-863-2458
Breanna Young                        +1-416-863-2486              
 
or any other member of our Food, Beverage & Agribusiness group.